Given the housing crisis in Toronto, its surrounding cities, and in some places across the country, we need to consider fundamentally changing how we trade single-family homes.
There is no shortage of articles on Toronto’s housing crisis. Indeed, this catch-all term seems to encompass the lack of affordable rental housing, to the steadily increasing rates of homelessness, to the sky-rocketing price of property in the GTA. There is reason for all the discussion: as of October 2021, the average cost of a single-family home in Toronto is up to $1.16 million, a whopping 19.3 per cent more than it was in 2020, a rate of increase approximately four times that of the average income. Despite a promising national housing strategy that purports to incentivize first time home buyers and increase the stock of affordable rentals, one wonders how we — and other cities struggling to keep up with the demand for housing – can adapt current legal infrastructure to allow more people to access home ownership.
Take three friends in their 20s, all of them hoping to get into the housing market. None can afford to buy a home alone in downtown Toronto. However, as a group, they could collectively purchase a home with adequate space for their needs. As an added benefit, they could choose to use the space communally or construct three self-contained apartments. They could even vary their proportionate contributions to the down payment based on the square footage they’d be occupying.
While the idea of co-buying has gained popularity in the past five years, there continues to be some trepidation about taking the leap to co-purchase property. This is because our existing systems are not structured to accommodate the model. As it stands, mortgages cannot be easily divided into shares, which means that the group of three would sign onto a single mortgage for which they would all be equally liable. In the case of a default, all three of the parties could stand to lose the home.
One way to clarify the rights and responsibilities of the parties is by way of a co-ownership agreement that delineates the respective rights and responsibilities of the parties. Full disclosure: our firm has presented on this topic, and we continue to draft co-ownership agreements for various permutations of buyers, from groups of friends to multiple families. There are standard clauses that are worth including: for instance, a requirement to maintain a joint bank account with three months’ mortgage contributions and other operating expenses, unanimous consent to rent unoccupied units, mandatory financial disclosure by the parties at regular intervals. Then there are the exit clauses: where one party fails to make their monthly contribution to the joint account, the others could cover it and treat it as a loan or, if the default continues, trigger a sale of the property at fair market value, as determined by an appraiser or an average of multiple appraisals. If they have enough money, they could even buy the defaulting owner out.
While such agreements do lend much-needed clarity to co-buying arrangements, they continue to be a “work around” to an underlying problem: the fact that our planning and zoning laws do not contemplate the sub-division of single-family homes into multiple lots that can be individually bought and sold without significant administrative complications.
While there are some who have attempted to “convert” smaller properties into condominiums, to get around the issue I’ve described here, condominium corporations are subject to a host of requirements prescribed by the Condominium Act, like electing a board, carrying out reserve fund studies and conducting audits. A larger building may be able to carry these costs, but they can become prohibitive for anyone buying an apartment in a three or four unit home.
There is also the possibility of structuring the property as a corporation, either under the Ontario Business Corporation Act or Co-operative Corporations Act. Under this structure, buyers are shareholders, whose shares grant them occupancy rights to specific units. However, enacting these corporate structures for a single-family home with less than five units seems unnecessarily complex and onerous.
Toronto is not the first city to grapple with home ownership becoming increasingly out of reach for young people. We need to start thinking about innovative solutions that includes making the best use of our existing housing stock.